Gaizer.com Tips for Business Start-ups

Sole Proprietorship

Pros:

• Easy to start and manage
• Inexpensive
• No separate tax returns, business gains and loses are reported in your personal income tax returns
• Flexible to manage, it gives you complete control
• Business expenses and loses are tax deductible

Cons:

• Unlimited personal liability for business debts and lawsuits
• Illness can endanger your business
• Difficult to find investors
• May be at a disadvantage attracting employers who are looking for ownership in the business

Partnership

Pros:

• Easy to set up
• The partners report their business share of gains and loses on their personal tax returns
• Partners have full authority of the business
• Business losses are tax deductible
• Partners can share the workload and contribute different ideas to the business
• More financial as well as intellectual resources for the business

CONS:

• Unlimited personal liability for general partners    * Each partner have full authority to commit the business to a contract (with exceptions)
• Its difficult to remove an unproductive partner from the business
• Personal assets are at risk if the business goes bankrupt
• The partnership ends if a partner leaves, retires, or dies

Corporation

PROS:

• Owners liability is limited to the investment in the company
• Easier to get investors
• Ownership is transferable
• The organization does not end when a shareholder (owner) dies
• Easier to separate business functions into sub-divisions
• A corporation can deduct cost of benefits provided to employers or owners

CONS:

• Complex to set up, maintain and difficult to dissolve
• C-corporations are subject to double taxation
• Costly to set-up
• Stricter rules for operations than Partnerships and partnerships
• If set up as an S-corporation, your company cannot have subsidiaries
• Not as much control as you would have with a Partnership or partnership

S-Corporation

PROS:

• If you plan to sell your S corporation the taxable gain in the business can be less than if you set up your business as a regular corporation
• You can declare business losses in your income taxes with an S corporation, offsetting your tax liability
• You can minimize FICA and self-employment taxes. Shareholder’s profits are not taxed in this manner
• You can raise capital more easily than a sole proprietorship or partnership
• You have the limited liability protection without paying taxes as a corporation

CONS:

• S corporations cannot have more than one hundred shareholders    * The company shareholder cannot deduct the cost of fringe benefits provided to employees who own more than 2% of the corporation
• A shareowner cannot deduct loses more than the amount invested in the company
• Each S corporation shareholder has to be at least a U.S. Permanent resident
• Profits and losses for an S corporation are proportional to each members investment into the business
• You must receive compensation before earnings are distributed to shareholders (you must pay the employment taxes) important when the shareholder is also the employee.

Limited Liability Company

PROS:

• Affords Limited Liability, The owners can only lose the amount invested in the company
• Is easier to manage than a S-Corporation and a C-corporation
• Formal Structure that is investment friendly
• The organization enjoys pass-through taxation (you pay taxes on your personal income) but you can elect for the LLC to be taxed as a corporation.
• Partners can divide profits not proportional to their investment in the company. Most LLC choose to divide profits proportionally.

CONS:

• If in a partnership, a partner has the authority to bind the partnership to a contract.
• The LLC dissolves if a partner leaves the organization, retires, or dies.